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8-K - FORM 8-K - InterDigital, Inc. | w82541e8vk.htm |
Exhibit 99.1
INTERDIGITAL ANNOUNCES FIRST QUARTER 2011 FINANCIAL RESULTS
KING OF PRUSSIA, PA April 27, 2011 InterDigital, Inc. (NASDAQ: IDCC) today announced results
for the first quarter ended March 31, 2011.
First Quarter 2011 Highlights:
| Revenue of $78.5 million | ||
| Net income of $23.3 million, or $0.51 per diluted share | ||
| Ending cash and short-term investments totaling $527.4 million. |
Our first quarter results for 2011 marked a good start to the year with solid revenues, net
income, and a strong cash balance, commented William J. Merritt, InterDigitals President and
Chief Executive Officer. In addition, we completed the private placement of $230 million in
senior convertible notes in early April, which was extremely well received in the capital markets.
We believe that this offering provides additional opportunities to create value through targeted
acquisitions, partnering opportunities and attractive new investments.
During the quarter, we continued to have success in adding new patent licenses. In January, we
entered into a patent license agreement with Acer, Inc. that covers 2G, 3G and 4G wireless
technologies, added Merritt. Also, we continue to have discussions with industry-leaders in
mobile technologies, including LG, for new, renewed and extended license agreements covering 2G, 3G
and 4G technologies and a variety of connected devices.
During this quarter, we also saw increasing interest in our suite of technologies targeting the
bandwidth crunch, continued Merritt. Both at the Consumer Electronics Show in January and at the
Mobile World Congress in February, we demonstrated some of the key technologies that we believe
will drive the future of wireless systems. Indeed, we believe our vision of a network of
networks is spot on with where the industry needs to migrate, and we intend to leverage our
financial strength, our technical expertise and strategic relationships to make that vision a
reality.
First Quarter 2011 Summary
Total revenue in first quarter 2011 totaled $78.5 million, a 33 percent decrease from $116.2
million reported in first quarter 2010. The decrease in revenue year over year was driven by the
absence of $14.4 million in fixed fee royalties associated with the license agreement with LG
Electronics, Inc. (LG), the renewal of which continues to be negotiated, and the impact of an
unusually high level of past sales revenue of $35.7 million in first quarter 2010 relating to a new
patent license agreement with Casio Hitachi Mobile Communications Co., Ltd. (CHMC) and the
resolution of a routine audit. Royalties from past sales totaled $2.3 million in first quarter
2011. This decrease in total revenue was partially offset by an increase in per-unit royalties of
32 percent, or $9.5 million, to $39.5 million in first quarter 2011 from $30.0 million in first
quarter 2010 due to strong sales from customers with concentrations in smartphones. Customers that
accounted for ten percent or more of the $78.5 million of first quarter 2011 total revenue were
Samsung
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Electronics Company, Ltd. (Samsung) (33 percent), Research in Motion Limited (RIM) (15 percent)
and HTC Corporation (HTC) (10 percent).
As a result of the decrease in revenue, the companys first quarter 2011 net income of $23.3
million, or $0.51 per diluted share, declined 52 percent from net income of $48.8 million, or $1.10
per diluted share, in first quarter 2010.
First quarter 2011 operating expenses of $41.1 million decreased $0.4 million, or 1 percent, from
$41.5 million in first quarter 2010. This decrease in operating expense was primarily due to a
decrease of $2.8 million in intellectual property enforcement costs ($3.8 million in first quarter
2011 versus $6.6 million in first quarter 2010). Additionally, long-term compensation expenses
decreased by $0.7 million primarily due to a first quarter 2010 charge of $0.9 million to increase
the companys accrual rate for the long-term compensation cash incentive period covering January 1,
2008 through December 31, 2010. These and other decreases were partially offset by higher
personnel-related costs and consulting services totaling $2.9 million. Personnel-related costs
grew $1.3 million primarily due to increased personnel levels within the companys patents,
licensing and advanced research groups. Consulting services increased $1.6 million primarily to
support research and development projects initiated within the last twelve months.
In first quarter 2011, the company reported net other expense of $0.9 million as compared to net
other income of $0.6 million in first quarter 2010. The change between periods resulted from the
recognition of $1.3 million for investment impairments in first quarter 2011.
The companys first quarter 2011 effective tax rate was approximately 36 percent, compared to an
effective tax rate in first quarter 2010 of approximately 35 percent. This year-over-year increase
was primarily driven by non-deductible investment impairment charges recognized in first quarter
2011.
In first quarter 2011, the company used $12.8 million in free cash flow1 compared to
$65.4 million generated in first quarter 2010. This change in free cash flow was primarily related
to the $100 million cash receipt from Samsung in first quarter 2010.
Near-Term Outlook
Scott McQuilkin, Chief Financial Officer, commented, Our first quarter results reflect strong
per-unit royalty revenues related to strong sales of smartphones. Indeed, RIM and HTC, which
together accounted for 25 percent of first quarter 2011 revenue, continue to post strong sales
which, in turn, will drive revenue growth in the future. Our discussions with LG continue and we
remain focused on signing a new agreement that delivers value. In addition, we are engaged in
arbitration to determine whether royalties are owed on specific product classes pursuant to one of
our technology solutions agreements. To date, we have deferred approximately $12.8 million in
related revenue.
McQuilkin continued, In first quarter 2011, we reported approximately $16.7 million of revenue and
approximately $16.5 million of cash receipts from per unit customers in Japan. Like others, we are
assessing the impact of the recent earthquake and tsunami in Japan on our company, including on the
per-unit royalties reported by our customers there. Because these events occurred late in the
first quarter and due to our practice of reporting per-unit revenues on a one-quarter lag, we
expect that the impact of these events on second quarter 2011 total revenue will be modest. We
will provide an update on our revenue expectations for
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second quarter 2011 after we receive and review the applicable patent license and product sales
royalty reports.
Conference Call Information
InterDigital® will host a conference call on Thursday, April 28, 2011 at 10:00 a.m.
Eastern Time to discuss its first quarter performance and other company matters. For a live
Internet webcast of the conference call visit
www.interdigital.com and click on the link to the
Live Webcast on the homepage. The company encourages participants to take advantage of the
Internet option.
For telephone access to the conference, call (888) 802-2225 within the U.S. or (913) 312-1254 from
outside the U.S. Please call by 9:50 a.m. ET on April 28 and ask the operator for the InterDigital
Financial Call.
An Internet replay of the conference call will be available on InterDigitals web site in the
Investor Relations section. In addition, a telephone replay will be available from 1:00 p.m. ET
April 28 through 1:00 p.m. ET May 3. To access the recorded replay, call (888) 203-1112 or (719)
457-0820 and use the replay code 1587277.
About InterDigital
InterDigital develops fundamental wireless technologies that are at the core of mobile devices,
networks, and services worldwide. We solve many of the industrys most critical and complex
technical challenges, inventing solutions for more efficient broadband networks and a richer
multimedia experience years ahead of market deployment. InterDigital has licenses and strategic
relationships with many of the worlds leading wireless companies.
InterDigital is a registered trademark of InterDigital, Inc.
For more
information, visit the InterDigital website: www.interdigital.com.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended. Such statements include the information under the
heading Near-Term Outlook and other information regarding our current beliefs, plans and
expectations, including, without limitation: (i) our belief that our recent notes offering provides
us with additional opportunities to create value through targeted acquisitions, partnering
opportunities and attractive new investments, (ii) our belief that we are developing key
technologies that will drive the future of wireless systems, our belief that our vision of a
network of networks is spot on with where the industry needs to migrate, and our plan to leverage
our financial strength, our technical expertise and strategic relationships to make that vision a
reality, (iii) our belief that the strong sales being posted by RIM and HTC will drive revenue
growth in the future, (iv) our belief that our discussions with LG will lead to a new agreement
that delivers value, (v) our expectation that the impact of the recent events in Japan on our
second quarter 2011 total revenue will be modest and (vi) second quarter 2011 guidance. Words such
as anticipate, estimate, expect, project, intend, plan, forecast, variations of any
such words or similar expressions are intended to identify such forward-looking statements.
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Forward-looking statements are subject to risks and uncertainties. Actual outcomes could differ
materially from those expressed in or anticipated by such forward-looking statements due to a
variety of factors, including, without limitation, those identified in this press release, as well
as the following: (i) unanticipated delays, difficulties or acceleration in the execution of patent
license agreements; (ii) our ability to leverage our strategic relationships and secure new patent
license and technology solutions agreements on acceptable terms; (iii) changes in the market share
and sales performance of our primary customers, delays in product shipments of our customers and
timely receipt and final reviews of quarterly royalty reports from our customers and related
matters; (iv) the failure of the markets for our technologies to materialize to the extent or at
the rate that we expect; (v) the resolution of current legal proceedings, including any awards or
judgments relating to such proceedings, additional legal proceedings, changes in the schedules or
costs associated with legal proceedings or adverse rulings in such legal proceedings; and (vi) an
increase in the companys cash needs or decrease in available cash. We undertake no duty to update
publicly any forward-looking statement, whether as a result of new information, future events or
otherwise, except as may be required by applicable law, regulation or other competent legal
authority.
1Free cash flow is a supplemental non-GAAP financial measure that InterDigital believes
is helpful in evaluating the companys ability to invest in its business, make strategic
acquisitions and fund share repurchases, among other things. A limitation of the utility of free
cash flow as a measure of financial performance is that it does not represent the total increase or
decrease in the companys cash balance for the period. InterDigital defines free cash flow as
net cash provided by operating activities less purchases of property and equipment, technology
licenses and investments in patents. InterDigitals computation of free cash flow might not be
comparable to free cash flow reported by other companies. The presentation of this financial
information, which is not prepared under any comprehensive set of accounting rules or principles,
is not intended to be considered in isolation or as a substitute for the financial information
prepared and presented in accordance with generally accepted accounting principles (GAAP). A
detailed reconciliation of free cash flow to net cash provided by operating activities, the most
directly comparable GAAP financial measure, is provided at the end of this press release.
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands except per share data)
(dollars in thousands except per share data)
(unaudited)
For the Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
REVENUES: |
||||||||
Per-unit royalty revenue |
$ | 39,450 | $ | 30,000 | ||||
Fixed fee amortized royalty revenue |
35,201 | 48,074 | ||||||
Past Sales |
2,311 | 35,731 | ||||||
Technology solutions revenue |
1,496 | 2,382 | ||||||
Total Revenue |
78,458 | 116,187 | ||||||
OPERATING EXPENSES: |
||||||||
Selling, general and administrative |
7,780 | 7,519 | ||||||
Patent administration and licensing |
15,948 | 17,823 | ||||||
Development |
17,424 | 16,164 | ||||||
41,152 | 41,506 | |||||||
Income from operations |
37,306 | 74,681 | ||||||
OTHER (EXPENSE) INCOME |
(942 | ) | 600 | |||||
Income before income taxes |
36,364 | 75,281 | ||||||
INCOME TAX PROVISION |
(13,025 | ) | (26,454 | ) | ||||
NET INCOME |
$ | 23,339 | $ | 48,827 | ||||
NET INCOME PER COMMON SHARE BASIC |
$ | 0.52 | $ | 1.12 | ||||
WEIGHTED AVERAGE NUMBER OF COMMON |
||||||||
SHARES OUTSTANDING BASIC |
45,306 | 43,614 | ||||||
NET INCOME PER COMMON SHARE DILUTED |
$ | 0.51 | $ | 1.10 | ||||
WEIGHTED AVERAGE NUMBER OF COMMON |
||||||||
SHARES OUTSTANDING DILUTED |
45,872 | 44,383 | ||||||
CASH DIVIDENDS DECLARED PER COMMON SHARE |
$ | 0.10 | $ | 0.00 | ||||
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SUMMARY CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(dollars in thousands)
(unaudited)
For the Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Net income before income taxes |
$ | 36,364 | $ | 75,281 | ||||
Taxes paid |
(3,048 | ) | (16,500 | ) | ||||
Depreciation, amortization, share-based compensation
& asset impairment |
8,819 | 6,924 | ||||||
Increase in deferred revenue |
17,338 | 8,575 | ||||||
Deferred revenue recognized |
(61,610 | ) | (61,357 | ) | ||||
(Decrease) Increase in operating working
capital, deferred charges and other |
(3,070 | ) | 59,779 | |||||
Capital spending & patent additions |
(7,602 | ) | (7,297 | ) | ||||
FREE CASH FLOW |
(12,809 | ) | 65,405 | |||||
Tax benefit from shared-based compensation |
564 | 982 | ||||||
Payments on long-term debt, including capital leases |
(46 | ) | (354 | ) | ||||
Dividend Payments |
(4,526 | ) | | |||||
Proceeds from exercise of stock options |
2,612 | 6,595 | ||||||
Unrealized (loss) on short-term investments |
(23 | ) | (46 | ) | ||||
NET (DECREASE) INCREASE IN CASH
AND SHORT-TERM INVESTMENTS |
$ | (14,228 | ) | $ | 72,582 | |||
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SUMMARY CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
(dollars in thousands)
(unaudited)
March 31, 2011 | December 31, 2010 | |||||||
Assets |
||||||||
Cash & short-term investments |
$ | 527,441 | $ | 541,669 | ||||
Accounts receivable (net) |
22,576 | 33,632 | ||||||
Current deferred tax assets |
50,984 | 35,136 | ||||||
Other current assets |
10,492 | 9,119 | ||||||
Property & equipment and Patents (net) |
139,526 | 138,649 | ||||||
Other long-term assets (net) |
88,413 | 116,438 | ||||||
TOTAL ASSETS |
$ | 839,432 | $ | 874,643 | ||||
Liabilities and Shareholders Equity |
||||||||
Current portion of long-term debt |
$ | 318 | $ | 288 | ||||
Accounts payable, accrued liabilities, taxes payable & dividends payable |
26,995 | 43,468 | ||||||
Current deferred revenue |
132,923 | 134,804 | ||||||
Long-term deferred revenue |
289,783 | 332,174 | ||||||
Long-term debt & other long-term liabilities |
12,709 | 10,793 | ||||||
TOTAL LIABILITIES |
462,728 | 521,527 | ||||||
SHAREHOLDERS EQUITY |
376,704 | 353,116 | ||||||
TOTAL LIABILITIES & SHAREHOLDERS EQUITY |
$ | 839,432 | $ | 874,643 | ||||
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RECONCILIATION OF FREE CASH FLOW TO NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
In the summary consolidated statements of cash flows and throughout this
release, the company refers to free cash flow. The table below presents a
reconciliation of this non-GAAP financial measure to net cash provided by
operating activities, the most directly comparable GAAP financial measure.
For the Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Net cash (used in) provided by operating activities |
$ | (5,207 | ) | $ | 72,702 | |||
Purchases of property, equipment |
(931 | ) | (442 | ) | ||||
Patent additions |
(6,671 | ) | (6,855 | ) | ||||
Free cash flow |
$ | (12,809 | ) | $ | 65,405 | |||
# # #
Media Contact:
|
Investor Contact: | |
Jack Indekeu
|
Janet Point | |
Email: jack.indekeu@interdigital.com
|
Email: janet.point@interdigital.com | |
+1 (610) 878-7800
|
+1 (610) 878-7800 |